Before buying a site or a conversion project, developers run an appraisal: what the finished scheme is worth, what it costs, and whether the profit is worth the risk.
Start with GDV
Gross development value (GDV) is what the finished project will sell for, usually the total of the expected sale prices. Base it on recent sales of similar new homes nearby, not on asking prices.
Add up every cost
The land, stamp duty and legal fees, build costs, professional fees (architect, planning, surveyor, building control), a contingency, finance costs, and selling costs such as agents and legal fees. Missing a cost line is one of the most common appraisal mistakes.
Worked example
| Item | Figure |
|---|---|
| GDV, 4 houses at £300,000 | £1,200,000 |
| Total costs including land | £1,000,000 |
| Profit | £200,000 |
| Profit on cost | 20% |
| Profit on GDV | 16.7% |
Profit on cost or on GDV?
Both are used. Profit on cost compares the profit with what you spend, and profit on GDV compares it with the end value. Figures of around 15% to 20% on GDV, or 20% to 25% on cost, are often quoted as targets, with more expected on riskier schemes. Lenders will have their own minimums.
Residual land value
Turn the sum around to find what you can afford to pay for the site: GDV, minus all costs except the land, minus your target profit. What is left is the most the land is worth to you.
Run an appraisal
The Development Appraisal Calculator works out total costs, profit on cost and on GDV, and the residual land value for your target profit. For bigger schemes, the Property Development Appraisal Tool adds finance, a sensitivity table and peak funding.